The Broker Who Banked the Premium
On 5 December, Lagos Foods Ltd paid ₦42m to its long-standing broker, Coastal Risk Brokers, for renewal of its fire and business interruption cover from 1 January. Coastal issued a broker's cover note and a certificate showing the insurer's name. Coastal remitted only ₦10m on 20 January, using the balance to pay office rent and salaries. A fire on 15 January caused ₦180m of damage. The insurer says it never received the premium, that the policy was never renewed, and that in any event section 64 of the Insurance Act 2003 ('no premium, no cover') defeats the claim. Coastal's licence was suspended on 3 February; its professional indemnity policy has a ₦50m limit and a ₦5m deductible, and excludes dishonesty. The client's finance director has asked you, as its adviser, what to do. The insurer's underwriter privately accepts that Coastal had authority to issue cover notes for renewals.
1. Is the insurer liable to Lagos Foods? Analyse the broker's role, section 50 and section 64 of the Insurance Act 2003, and the cover note.
Read the worked answer
Section 64 does not assist the insurer here. Section 50 of the Insurance Act 2003 treats a licensed broker as the insurer's agent for receiving premium; payment to Coastal is payment to the insurer, and the insurer's remedy is against the broker. Section 64 is designed to prevent cover without premium, not to let an insurer escape where its own agent has received the money.
The cover note and certificate, issued within authority the underwriter privately accepts, evidence renewal from 1 January. The insurer cannot rely on its own failure to collect: it should have monitored the broker's account, demanded remittance within the prescribed 30 days and, if necessary, cancelled with proper notice before the loss.
Having allowed Coastal to hold itself out, the insurer is bound. The claim is ₦180m, subject to the policy limit, excess and any average or business-interruption waiting period.
Advise Lagos Foods to obtain written confirmation of the claim decision, not to pay the premium again, and to complain to NAICOM if payment is delayed. The insurer should pay and then prove in Coastal's liquidation.
2. What regulatory and recovery steps should Lagos Foods and the insurer take, and will the professional indemnity policy respond?
Read the worked answer
Regulatory. Coastal's use of client premium for rent and salaries breaches the trust requirement for client money and is a licence matter. Report it to NAICOM and, if misappropriation is suspected, to the police. The insurer should review broker credit controls and reconcile accounts monthly.
Recovery. The insurer can sue Coastal and prove in liquidation; section 50 makes the broker accountable for the premium. Directors may face personal liability if they traded while insolvent or misapplied trust money.
PI policy. The policy excludes dishonesty, and deliberate misappropriation is likely outside cover. A claim framed as negligent failure to remit may still meet the dishonesty exclusion. The ₦50m limit and ₦5m deductible would in any event leave a gap against the ₦32m unpaid.
Client. Lagos Foods has a valid claim against the insurer and should not fund the broker's default. If the insurer refuses, escalate to NAICOM's complaints unit and take legal advice. Any ex gratia payment should be documented without creating a precedent.
3. What should the insurer have done differently in its premium collection and broker monitoring to protect its position before the loss?
Read the worked answer
The insurer needed a broker reconciliation and credit-control process, not a single year-end chase. Specifically: issue renewal documentation only against a premium account statement; require brokers to remit within the statutory 30 days; flag any broker with aged balances; and suspend new business or cover-note authority where balances exceed agreed limits.
It should also have sent a cancellation or non-renewal notice to the insured before 1 January, copying the broker, warning that cover would not continue unless premium was received. That notice would have put Lagos Foods on inquiry and shifted the commercial pressure.
Internally, the underwriter's private acceptance of Coastal's authority should have been documented. Undocumented authority is difficult to defend and encourages disputes.
Finally, the insurer should treat broker debt as a credit risk, not an administrative matter. Aging reports, segregation of client money and escalation to the compliance function would have detected the ₦32m shortfall before the fire.